Rate hike buzz as RBI calls unscheduled MPC meeting

Coming close on the heels of the US Federal Reserve’s policy review, market watchers believe the MPC too may raise rates, though the chances appear slim.
RBI
RBI

RBI’s Monetary Policy Committee (MPC) will hold an outof- turn meeting next Thursday. While the central bank has indicated the ‘additional meeting’ is to draft the customary report about its failure to meet the inflation target, its timing has sparked suspicion about a rate hike.

Coming close on the heels of the US Federal Reserve’s policy review, market watchers believe the MPC too may raise rates, though the chances appear slim. That the RBI has given a heads-up about the meeting itself is surprising, raising hopes that the central bank may walk another mile and make the report public.

To recall, RBI governor Shaktikanta Das was explicit last month when he said any such explanatory communication to the government will remain between RBI and the sovereign. As per sub-sections (a), (b) and (c) of Section 45ZN of the RBI Act, when the banking regulator fails to meet the inflation target, it must report to the central government the reasons for failure, remedial actions proposed to be taken, and an estimate of the timeperiod within which the target shall be achieved.

Under RBI norms, a separate meeting must be scheduled to discuss and draft the report, which must be sent within one month from the date on which RBI missed its legal mandate. The RBI Act defines failure as average headline CPI inflation more than the upper tolerance level or less than the lower tolerance level for three consecutive quarters. Headline inflation remained above 6% for three quarters straight from January-March, April- June, July-September.

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